If your results exceed the values I recommended, that’s an excellent indication that you have exceptionally robust and high-performing strategies. Here’s what you should do next to make the most of these outstanding strategies:
If your results exceed the values I recommended, that’s an excellent indication that you have exceptionally robust and high-performing strategies. Here’s what you should do next to make the most of these outstanding strategies:
1. Prioritize Top-Performing Strategies:
- Select the Best Strategies: Prioritize strategies that exceed all or most of the values stated. For example, if a strategy has a Ret/DD ratio significantly above 4, a profit factor above 2, and a Sharpe ratio above 2, it’s a top candidate for inclusion in your portfolio.
- Diversify Within Top Performers: Ensure that your high-performing strategies aren’t too correlated with each other. A diversified set of high-quality strategies will help mitigate risk.
2. Create High-Performance Portfolios:
- Balance Strategy Types: Build a portfolio that combines different types of strategies (e.g., trend-following, mean reversion, breakout) to create a more resilient and balanced approach.
- Allocate Capital Strategically: Allocate more capital to strategies that have proven consistent and robust over all testing phases, but keep an eye on overall drawdown to avoid overexposure.
- Test Portfolio Stability: Run portfolio-level backtests and simulations to check for overall performance metrics like cumulative profit factor, Sharpe ratio, and maximum drawdown.
3. Stress Test and Validation:
- Monte Carlo Stress Testing: Perform Monte Carlo simulations to see how the portfolio performs under various simulated market conditions. This will help confirm that the strategies maintain high performance even with slight data variations or unexpected market behavior.
- Out-of-Sample (OOS) and Forward Testing: Ensure the strategies that exceed your stated metrics continue to perform well in OOS data and in live or demo forward testing.
4. Evaluate Long-Term Performance:
- Assess Stability and Adaptability: Check if the top-performing strategies maintain their edge over longer timeframes and during different market conditions (e.g., trending vs. ranging markets).
- Monitor Key Metrics: Continuously track the profit factor, Ret/DD ratio, Sharpe ratio, drawdown percentages, and CAGR/Max DD% to ensure these metrics remain favorable over time.
5. Prepare for Live Trading:
- Simulate Live Trading: Before deploying your portfolio for real capital, simulate live trading with historical data as a final check.
- Set Risk Management Rules: Establish stop-loss, take-profit, and position sizing rules that align with your high-performing strategy metrics.
6. Performance Monitoring:
- Regular Performance Review: Once live trading starts, monitor your strategies closely to see if they continue to exceed expectations. Adjust your portfolio as needed based on performance changes.
- Rebalance Portfolio: Periodically review and rebalance your portfolio to ensure it continues to contain only top-performing strategies that exceed your target metrics.
Benefits of Strategies That Exceed Your Metrics:
- High Reliability: Strategies with metrics that exceed your thresholds indicate a strong and reliable edge in the market.
- Risk Mitigation: Exceeding drawdown and stability requirements means these strategies are safer and less likely to encounter major losses.
- Scalability: Such strategies may allow for greater position sizing or capital allocation due to their high return-to-risk ratios.
Final Thoughts:
If your results are consistently exceeding these values, you are in a very strong position for creating an elite portfolio of trading strategies. Ensure that you maintain rigorous validation and risk management practices as you move forward to capitalize on these high-performing strategies.